2018-03-29

Yin Yang Housing Transactions Going Away

The People's Bank of China Shenzhen Branch, the Shenzhen Banking Regulatory Bureau, and the Shenzhen Municipal Planning and Land Commission jointly issued notices stating that the commercial bank should use the online search contract and the number of sets of housing enquiries found in the real estate information system as the home loan business. According to the audit basis, the loan amount is determined based on the calculated value of the minimum value of the contracted record contract price and the housing appraisal price.

Reading is very garish, in short, the "yin and yang contract" phenomenon existing in housing transactions will be eliminated.

After all, how powerful is this policy? Will other cities in the country follow up with similar policies? Are people buying a house more expensive or cheaper?

Yin Yang contracts refer to buyers and sellers negotiating more than one price for a home. The transaction price, the official price reported to the government (which affects property taxes) and the appraisal price for the bank (which affects the size of the loan).

One is the transaction price , the so-called actual turnover.

One is the official signing price , because the signing price involves tax payment. Usually, people are willing to lower the price, which is generally lower than the transaction price.

There is also an appraisal price that involves the issue of bank loans. Usually, in order to get a higher loan amount, people are willing to increase the price, which is generally higher than the transaction price.

An example where the buyer raises the appraisal price so that the bank finances part of his down payment:

For example, if you want to buy a set of 2 million homes in Shenzhen, 30% down payment is 600,000 yuan, and normal bank loans are 1.4 million yuan.

In order to reduce the down payment, you say that the house price is 2.5 million yuan, and the bank will eventually evaluate it at 2.4 million yuan, and borrow 70% of this price, or 1.68 million yuan. In this way, the down payment is only 320,000 yuan, which is 280,000 yuan less.

Now, the government has decided to unify the three prices. The network signing price and the appraisal price will no longer be used by each other. The bank will determine the loan amount with the minimum price of the network sign-off price and the evaluation price.

The end result will be more leverage sucked out of real estate and a hit to the existing property market:

“ This is bad for the Shenzhen property market .” Yang Hongxu, vice president of the Yiju Research Institute, told the China-Singapore News Agency that the second-hand housing market in Shenzhen will cool down significantly, and the entire market will be in a downtrend.

He believes that there are more real estate speculators in Shenzhen and the leverage ratio is high. The implementation of the three-price integration will ease this situation.

Some analysts see this regulation spreading across China, but others note that Beijing and Shanghai may not need it:

Shenzhen is the vane of the national property market. The implementation of the three-price integration will be followed by other cities .

Hu Jinghui predicts that some cities that are not regulated in market transactions may follow suit.

Zhang Hongwei, director of the same strategy consulting and research department, holds the same view. He believes that the market does have non-standard problems. However, whether other cities follow suit will depend on the effect of cities such as Shenzhen.

Yang Hongxu believes that Beijing and Shanghai used high leverage to purchase homes less than Shenzhen, and they have already taken measures in regulating the yin and yang contracts, so there is no follow-up.

Volatility is coming out of China's housing market over the long-term. Volatility in short-term will be determined by how quickly speculators move their cash flow negative price depreciating houses and where the new equilibrium sits.